Guilty men, the Financial Times, and monopoly money

My only surprise is that an article as justifiably angry as this has not been written sooner. Here are Peter Oborne and Frances Weaver, in the latest edition of the Spectator. They have also penned an item called Guilty Men, published by the Centre for Policy Studies.

There are several institutions that are targeted. And I almost wonder if the authors of the article have been channelling our own Paul Marks on the subject of the Financial Times. Paul has written about the Economist also with venom. An example of what annoyed Paul about the Economist, is linked to here.

Here are the paragraphs that stood out for me in the Spectator article:

“Meanwhile the pro-Europeans find themselves in the same situation as appeasers in 1940, or communists after the fall of the Berlin Wall. They are utterly busted. Let’s examine the case of the Financial Times, which claims to be Britain’s premier economic publication. About 25 years ago something went very wrong with the FT. It ceased to be the dry, rigorous journal of economic record that was so respected under its great postwar editor Sir Gordon Newton.”

“Turning its back on its readers, it was captured by a clique of left-wing journalists. An early sign that something was going wrong came when the FT came out against the Falklands invasion. Naturally it supported Britain’s entry to the Exchange Rate Mechanism in 1990. In 1992, under the slow-witted editorship of Richard Lambert (in a later incarnation, as director general of the Confederation of British Industry, Sir Richard was to become one of the most sycophantic apologists for Gordon Brown’s premiership), it endorsed Neil Kinnock as prime minister. It has been wrong on every single major economic judgment over the past quarter century.”

“The central historical error of the modern Financial Times concerns the euro. The FT flung itself headlong into the pro-euro camp, embracing the cause with an almost religious passion. Doubts were dismissed. Here is the paper’s supposedly sceptical and contrarian Lex column on 8 January 2001, on the subject of Greek entry to the eurozone. ‘With Greece now trading in euros,’ reflected Lex, ‘few will mourn the death of the drachma. Membership of the eurozone offers the prospect of long-term economic stability.’ The FT offered a similar warm welcome to Ireland.”

“The paper waged a vendetta against those who warned that the euro would not work. Its chief political columnist Philip Stephens consistently mocked the Eurosceptics. ‘Immaturity is the kind explanation,’ sneered Stephens as Tory leader William Hague came out against the single currency. Even as late as May 2008, when the fatal booms in Ireland and elsewhere were very obviously beginning to falter, the paper retained its faith: ‘European monetary union is a bumble bee that has taken flight,’ asserted the newspaper’s leader column. ‘However improbable the celestial design, it has succeeded in real life.’ For a paper with the FT’s pretensions to authority in financial matters, its coverage of the single currency can be regarded as nothing short of a disaster.”

An interesting side point is that the authors seem to take it as read that individual countries should, as matters of sovereignty, have their own currencies. What the authors don’t state – and I don’t know their views on this – are their opinions on fiat money per se. It is, after all, not much consolation to supporters of free markets to replace one dud monopoly money system with a network of national monopoly fiat moneys instead. What we need is actual competition between and even more crucially, within countries. Remember the old idea of a hard money “parallel currency” that the likes of Nigel Lawson, former UK Chancellor of the Exchequer, toyed with?

Transnational currencies such as the euro may indeed be disasters waiting to happen. But national currencies can often blow up too, or devalue slowly but insidiously. That point needs to be made loud and clear. The end of the euro may be cause for grim satisfaction in some corners but that is not the only kind of economic folly out there.

15 comments to Guilty men, the Financial Times, and monopoly money

To your point about national currencies: they are superior to continent-wide currencies in roughly the same way that a black eye is better than a severed limb. I would gladly prefer the one to the other.

Of course, I really want anyone to have the right to make a private currency of any kind, at any time; but for that to take off, there would have to be a major change in the way we handle taxation. National currencies are a good first step, in comparison to the Euro; metropolitan currencies would be even better, cf. Jane Jacobs’s “Cities and the Wealth of Nations”.

That article is a bit of an eyebrow raiser, and I wouldn’t dismiss the possibility that the invisible hand of Paul Marks may have been at work there.

The free market, competitive provision of currency is a not that has to be played with an e-bow.

“… but for that to take off, there would have to be a major change in the way we handle taxation.”

Not necessarily: with the advent of experiments like Bitcoin, we could be looking at a partial collapse of the distinction between tax avoidance and tax evasion by rendering some forms of taxation unenforceable.

“What we need is actual competition between and even more crucially, within countries”

Well sort of yes, but mostly no. Money is more like driving on a particular side of the road than it is like televisions. Its utility comes from the fact that everybody uses the same money. The more we all use the same money, the better. The only requirements of money are that it can’t be easily counterfeited (particularly by Governments) and that it is practical to use. Once the public has settled on a particular kind of money that meets those requirements, competition between different kinds of money is not really needed. To put it another way, whether the money is gold or bitcoins isn’t really the issue. Either will do. What is important is that whatever the money is, it is universally recognised as such. Otherwise we just have a glorifed version of barter (as with the current arrangements in which I have to change my pounds for euros if I want to buy anything in Europe! )

No, Julius is wrong, on a number of points, but primarily because he seems to be confusing (or conflating) “money” with “currency”. Money is a storehouse of value; currency is merely a proxy for it, generally for reasons of convenience. (Carrying around large quantities of gold is impractical; having a piece of paper which is exchangeable for it is better, but the key is exchangeability.) Having competing currencies, even within a polity, is desirable because it keeps them all honest.

If all economic transactions are conducted in specie it doesn’t really matter whether the coin used is a Krugerrand, a Gold Eagle, a Maple Leaf or any other mintage as long as you trust the weight and purity; all will be equally accepted. But competition is what ensures that the weight and purity remain as represented. And if the gold is representated by a paper note, you’ve merely substituted concern over the weight and purity of the coins with concern that the paper is in fact backed by the gold promised by its issuer. That’s why competing currencies are valuable: those which don’t find acceptance, or lose favor because its issuers debase them, will be driven out of the market. The survivors will hold their value.

When you have a single national currency you lose that market discipline. And the problem becomes immeasurably worse when it’s a government-issued fiat currency which you are required to accept (“legal tender” laws). We’re all witnessing the results of that endemic fraud today.

“Money is more like driving on a particular side of the road than it is like televisions. Its utility comes from the fact that everybody uses the same money. The more we all use the same money, the better

.”

Laird has already dealt with this error very effectively. I would just add another point, which is that the medium of exchange that we choose to use does not have to be a monopoly requiring a one-size-fits-all approach of the sort implied by the “driving on the side of the road” argument that Julius gives.

The key is to remove the requirement that money X or Y be accepted as legal tender. If people can, for example, refuse to accept payments in a currency they distrust, and sufficient numbers of people choose to pay in an alternative, then banks which issue stable, trusted currencies will eventually be able to dominate with their currencies and the weaker ones will lose.

Over time, maybe one, dominant currency will hold sway among people. Fine. But the great thing about having no legal tender is that the issuers of such widely used currencies cannot rest on their laurels. If they start to over-issue, and engage in the sort of risky, fractional credit creation we have seen, then other, more solid currencies will gain market share.

I have lost confidence in the ability of governments or their proxies, such as central banks, to administer a stable currency. The political temptations to over-issue credit are too great and the penalties for banks/politicians who do this are insufficient.

Just as even once-mighty organisations such as IBM or Microsoft saw their software/computer dominance challenged by clever upstarts, so the same process can happen with currencies. Let the market reign, and as competitively as possible.

We need to give up the fetish of state-run, monopoly money. Like all such things, it sounds odd to those who haven’t encountered this idea before. But it is not odd at all when you think about it for a short while.

One little point I’d like to make is that with the advent of electronic gizmos it is easier in practical terms to have competing currencies than it was in past decades. What Julius said, “Money is more like driving on a particular side of the road than it is like televisions”, used to be more true than it is now, though it was never quite true – the inconvenience of changing currencies was never quite as bad as the inconvenience of meeting head on a stagecoach driven at full speed.

But now it’s a lot more like televisions. A gizmo, exact type unimportant, can handle recognition of the currency, exchange rates, and also relieves you of the need to carry much money. I’m amazed that Julius finds he has “to change my pounds for euros if I want to buy anything in Europe”. I don’t bother changing currency for any purchase above twenty euros or so: I just use my Barclaycard.

To those who think it would be difficult to handle multiple currencies, imagine if amongst the entities running them were, say, VISA, Amex and Mastercard.

One already has to juggle which is taken where yet VISA and Mastercard are pretty universal. It would not be very difficult to have VisaDollars and MasterMarks as currency, with the plastic being a debit card in that currency or notes and coin also in circulation.

As for taxation, there is no reason why the State cannot keep Sterling or USD operating and collect taxes in that currency. In fact a State that relies on one currency operated by a private company outside its control would be unwise…oh, err…

Taxpayers would only need to convert at the last moment to pay taxes, but so what? Efficient retail FOREX is quite possible (IIRC my HK multi-currency account gave a 0.3% spread on USD/HKD-GBP-CHF). Now, of course one can see the State being in denial as to exchange rates, but the market should find a way to bypass that.

I suspect that Julius (he can speak for himself and will correct me if I am mistaken about him) would reply to Laird by saying that if everyone is using gold coins (whether minted by different governments or, as in the United States before the ban in the 1850s – various private mints as well) then everyone is really using the same “money”.

However, one can indeed make technical definitional points about the exact meanings of the words “money” and “currency”.

As for the Economist and the Financial Times…..

I can undersand (if I force myself to) the appeal of the Economist.

It is the only English language magazine that gives anything like coverage of all the world’s news (I much prefer the Spectator – which I actually buy sometimes, I would never buy the Economist, but the Specator is an opinion journal not a news magazine).

The Economist is (still) greatly superior to “Time” and “Newsweek” which are (basically) comics (just comics without entertaining story lines). Of the two Newsweek is better – because it sometimes has interesting stuff in it (only sometimes – certainly not every week), whereas Time is just “what the average government school teacher is thinking” on the issues of the day – it is predictable, absurdly biased, and a bit thick (in the English slang sense of the word “thick”).

Also the Economist tends to have a bright eye catching front cover – although it tends to be misleading.

For example the front cover on this week’s issue is about the hunt (by politicians) of “the rich”.

Although the lead article (which the cover is ad for) just pretends to be against this demented “hunt” and, a few paragraphs in, comes out in favour of higher taxes – whilst lying about the facts (for example claiming their are massive government spending cuts in Britian – “four times bigger” than the tax increases).

Also the Economist is a magazine (although, as a tax and postal dodge, it claims to be a newspaper) – some people (including me) are malcordinated (clumsy) and find a broadsheet newspaper very hard to read.

However, what in the name of anything is the appeal of the Financial Times?

It serves up far left (and I mean far left – there are often articles full of praise for Karl Marx) politics presented for a business readership.

Are there really that number of far left business people? I know there are some (and they are very important – multi billionaires), but enough of them to warrent an international newspaper?

It has no attractive front cover and it is not in a easy to read magazine format.

Why does anyone buy it? Even companies for their employees?

What is the point of the “F.T.”?

“Ah Paul – people read stock prices from it…”

Stock (and other) prices that are a day out of date?

Do not traders have computers?

I am baffled by the survival of the Financial Times – it simply makes no sense.

I think that if people can own precious metals (gold, silver) and foreign currency, substantially without limitation or regulation ot taxation on “gains” against teh fiat currency, you would have a competitive currency.

Even with gains subject to taxation, Utah and maybe one or two other states have recently made gold acceptable for payment of debts. A small step in some ways, but it says a lot about what some people think of the US government’s and Federal Reserve’s stewardship of the dollar.

But in any case, if the goverment just made forex trading and changes in the bullion value of PMs non- taxable, you would come pretty close to what this post is about.

Laird distinguishes between money and currency (the latter being a proxy for the former). I am not familiar with that terminology, but I am happy to use it . On that basis, my point is addressed to money rather than currency, so I think we are actually all in agreement.

The preferred situation is a single kind of money (gold, silver, bitcoins, whatever) which is universally adopted, but free competition between banks and other financial institutions as regards banknotes, payment mechanisms etc. relating to the use of the (universal) money.

As a side note, by Laird’s definition, national currencies are of course national monies. They are not merely different proxies for the same underlying medium of exchange. Hence the present system is grossly subtoptimal in that it contains an element of barter.

With a single global money, no barter is involved because all goods would be priced by reference to the same unit of exchange (e.g. weight of gold). Of course the banknotes of some banks would be regarded as worth more than those of others (depending on reserve ratios etc) and that is as it should be in a free market, but the essential point is that everything would be priced by reference to a single kind of money unit.

Julius, I do think we’re largely in agreement here, but picking at nits is what I do so here goes.

I see no need for (and no value in having) a universal single “money”, be it gold, bitcoins, or anything else. People will use whatever money they feel most comfortable with, and someone will always find a niche providing an exchange between different ones. If nothing else, having various forms of “money” in circulation would help to protect all values in the event of some large exogenous event affecting any particular one of them (i.e., a massive gold strike, or some hacker counterfeiting bitcoins). A disruption to any one wouldn’t necessarily affect the others, which would help to stabilize economic transactions generally. And in any event, unless you had some outside agency imposing the use of that single universal “money”, alternate forms would spontaneously arise anyway; that’s how free people work. Any such agency possessing that sort of political power would inevitably become corrupt. I’ll take the natural corrective forces of the free market over that any day.

I also take issue with your belief that economic transactions effected through the use of “money” are somehow qualitatively different from, or superior to, barter exchanges. Money merely provides a common denominator which (among its other benefits) simplifies economic transactions. But at heart it’s just another form of barter, a “super-barter” if you wish. It’s useful, certainly (else we wouldn’t have developed the concept), but traditional barter is perfectly fine for many types of exchanges.

Predictions as to what a true free market world would be like are always difficult. But it seems to me that the advantages of a single type of money are so overwhelming that it is highly likely it would come to pass and fairly quickly. Once a critical mass of people are pricing by eg weight of gold, then I would expect pretty quickly everybody would. Why not? There is no advantage in being a hold-out when it comes to money.

Of course if the “money” developed a problem then a replacement would emerge. I can see this might be an issue with something like bitcoins But more likely the very risk of a bitcoin money failure would give the advantage to gold. It is hard to think of any plausible examples of such money killing problems with gold, which is why on a free market, I would expect gold to be the money.

Of course barter is perfectly fine if there is a coincidence of wants. But there rarely is. Hence the evolution of money in the first place. In any situation where there is no coincidence of wants, money is required – the alternative being a grossly suboptimal chain of barters, or no sale at all.

Gold would probably be the principal money of choice, as you suggest. But throughout history silver has circulated concurrently with it, and at times other things as well. If (when) paper currencies collapse and we all revert to using specie I doubt that it will be any different. Time will tell.

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